Non-deliverable forward

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A non-deliverable forward contract (NDF) is a foreign exchange derivative in which there is no physical settlement at maturity, but instead is cash-settled in an international financial center, typically in U.S. dollars.[1] In general, NDFs are used in FX transactions involving emerging market currencies, which are often illiquid and not freely convertible, and often involve restrictions on capital flow.[2]


As trade with Latin American countries grew throughout the 1990s, the use of NDFs as a way of hedging foreign exposure grew as well. Over this period, the use of NDFs spread to emerging currencies in Asia and Eastern Europe. In 1997, the International Swaps and Derivatives Association ([[ISDA) added provisions for NDF transactions to its definitions.[3]

The Dodd-Frank Act, signed in 2010, left it to the Department of the Treasury to determine the scope of the Act's reach into foreign exchange. In November 2012, Treasury issued its final determination which exempted spot FX and physically-delivered swaps and forwards from mandatory clearing and execution requirements of Dodd-Frank. However, NDFs, options and other derivatives are required to adhere to such Dodd-Frank requirements.